Definition
term definition
Money Laundering
Money Process by which the criminals attempt to conceal the true origin and
laundering ownership of the proceeds of their criminal activity,
Allowing them to maintain control over the proceeds and ultimately,
Providing a legitimate cover for their sources of income.
Placement Putting illegal funds from the illegal activity into apparently legitimate business
activity or property
/ which is when cash obtained through criminal activity is first placed into the
financial system
e.g. Open a cash sales business (Hair dressing) and put the illegal funds in to the
bank account there as a cash income
Layering Involves the wire transfer of funds through a series of accounts in an attempt to
hide the funds' true origins.
/ when cash is disguised by passing it through complex transactions involving
many layers, making the transactions difficult to trace
Integration involves buying of legitimate goods, using the cash after the layering stage
/ is when the illegally gained funds are moved back into the legitimate
economy.
Fraud and Error
Professional an attitude that includes a questioning mind, being alert to conditions which
may indicate possible misstatements due to fraud or error, and critical
Scepticism assessment of audit evidence. [ISA 200]
Deficiency A control designed, implemented or operated in such a way that it is unable to
prevent, or detect and correct, misstatements on a timely basis, or a control
in IC
statements on a timely basis is missing. [ISA 265]
Risk
Audit risk Risk that the auditor expresses an inappropriate opinion (invalid opinion)
Ethics
Familiarity The threat that due to a long or close relationship with a client, or employing
organization, a professional accountant will be too sympathetic to their
threat interests or too accepting of their work
Advocacy employing
threat compromised.
Self-interest The threat that a financial or other interest will inappropriately influence a
judgment or behaviour
threat
Self-review The threat that a professional accountant will not appropriately evaluate the
results of a previous judgment made; or an activity performed by the
threat accountant
organization, on which the accountant will rely when forming a judgment as
part of performing a current activity.
,Intimidation The threat that a professional accountant will be deterred from acting
objectively because of actual or perceived pressures, including attempts to
threat exercise undue influence over the accountant
Audit report
Key audit
professional judgements and selected from matters communicated to those
matter charged with governance (TCG) [ISA 260]
,Topic summary
Money laundering
Indicators -PLI
P Placement
L Layering
I Integration
- transaction
Technical Factsheet 145 Anti-money laundering guidance for the
accountancy sector, money laundering can result from a single transaction
- FS
To properly assess the impact of the transaction on the financial statements, the audit firm needs
to understand the accounting entries which have been made.
The debit side of the entry would be to cash, and the audit team should enquire as to where the
credit side of the entry has been recognised.
- Tip- off
itself be considered
a criminal offence, depending on relevant legislation.
According to Technical Factsheet 145, a tipping off disclosure may be made in writing or verbally,
and either directly or indirectly so the audit team must ensure that when discussing the matter
with suspect, he is not alerted to the suspicions of money laundering.
Basic elements of AMLA CRIME
C CDD procedures before accepting clients
- to establish CDD programme within the firm
R Records of client identification and any new transactions undertaken for/with
client
- to maintain adequate records and data protection system
I Internal procedures appropriate to forestall and prevent MOL and make relevant
individuals aware of the procedure
- to establish internal reporting lines which should be followed to report any
suspicions
- reporting elements:
to raise a standard for i.e. Suspicious Activity Report [SAR]
content: name, amount, reason Whereabout NARW
M MLRO money laundering reporting officer
- to appoint the MLRO with suitable level of experience and seniority
- duties of MLRO:
consider all circumstances
document the process
, decide whether to report to relevant authorities
consider confidentiality threats
to take legal advice
E Education and training
- to provide staff education and training on an ongoing basis, on how to
recognise and handle transaction
NOCLAR
- ORRRCCC
O Obtain understanding and assess ROMM [ISA 315] arising from NOCLAR.
Establish NOCLAR (confirmed) [ISA 250]
R Report to TCGM. [ISA 265] communication ASAP + [ISA 250]
R Report to TCG [ISA 260]
R Report to others (regulatory authorities) + [ISA 250]
Depending on whether there is a legal duty to disclose or under the public interest.
Auditor to comply with confidentiality principle/principle of confidentiality.
good faith, then it will not constitute a breach of duty of confidentiality.
As it may give rise to confidentiality threat, should have taken legal advice.
[Encouraged/recommended to seek legal advice]
C Consider implications for FS + [ISA 250]
understand how NOMAR affect Es
Should have considered provision of fines and penalties not considered.
C Consider implications for audit
Audit procedures should have been performed to determine amount, materiality and
probability of payment of fines or penalties.
The matter could be immaterial in monetary terms but material by nature.
Individual and GP FS could be MM.
Also impact on audit report/opinion
C Consider continuance
Fraud and error
Fraud risk factor - PIOR
, P Pressure
I Incentive
O Opportunity
R rationalism
:
ORRRCCC
ISA 200 [D]
ISA 500
ISA 240
ISA 330
Risk
Audit risk model [ARM]
AR = IR + CR x DR = 5%
AR Audit risk [D]
>5%: too risky
<5%: reduce profitability
IR Inherent risk (nature and characteristic of business)
CR Control risk SPAMSOAP fails to be detected timely)
DR Detection risk [SR + NSR = DR]
High DR: incompetent auditor
ROMM Financial statement risk [IR + CR = ROMM]
SR Sampling risk
NSR Non-sampling risk
Business Risk: Types - SFOC
Impacts:
Profits
Cash flows
Revenue
Business survival
- Usually, will produce ROMM
S Strategic
- Competition [market share,
customer base]
term definition
Money Laundering
Money Process by which the criminals attempt to conceal the true origin and
laundering ownership of the proceeds of their criminal activity,
Allowing them to maintain control over the proceeds and ultimately,
Providing a legitimate cover for their sources of income.
Placement Putting illegal funds from the illegal activity into apparently legitimate business
activity or property
/ which is when cash obtained through criminal activity is first placed into the
financial system
e.g. Open a cash sales business (Hair dressing) and put the illegal funds in to the
bank account there as a cash income
Layering Involves the wire transfer of funds through a series of accounts in an attempt to
hide the funds' true origins.
/ when cash is disguised by passing it through complex transactions involving
many layers, making the transactions difficult to trace
Integration involves buying of legitimate goods, using the cash after the layering stage
/ is when the illegally gained funds are moved back into the legitimate
economy.
Fraud and Error
Professional an attitude that includes a questioning mind, being alert to conditions which
may indicate possible misstatements due to fraud or error, and critical
Scepticism assessment of audit evidence. [ISA 200]
Deficiency A control designed, implemented or operated in such a way that it is unable to
prevent, or detect and correct, misstatements on a timely basis, or a control
in IC
statements on a timely basis is missing. [ISA 265]
Risk
Audit risk Risk that the auditor expresses an inappropriate opinion (invalid opinion)
Ethics
Familiarity The threat that due to a long or close relationship with a client, or employing
organization, a professional accountant will be too sympathetic to their
threat interests or too accepting of their work
Advocacy employing
threat compromised.
Self-interest The threat that a financial or other interest will inappropriately influence a
judgment or behaviour
threat
Self-review The threat that a professional accountant will not appropriately evaluate the
results of a previous judgment made; or an activity performed by the
threat accountant
organization, on which the accountant will rely when forming a judgment as
part of performing a current activity.
,Intimidation The threat that a professional accountant will be deterred from acting
objectively because of actual or perceived pressures, including attempts to
threat exercise undue influence over the accountant
Audit report
Key audit
professional judgements and selected from matters communicated to those
matter charged with governance (TCG) [ISA 260]
,Topic summary
Money laundering
Indicators -PLI
P Placement
L Layering
I Integration
- transaction
Technical Factsheet 145 Anti-money laundering guidance for the
accountancy sector, money laundering can result from a single transaction
- FS
To properly assess the impact of the transaction on the financial statements, the audit firm needs
to understand the accounting entries which have been made.
The debit side of the entry would be to cash, and the audit team should enquire as to where the
credit side of the entry has been recognised.
- Tip- off
itself be considered
a criminal offence, depending on relevant legislation.
According to Technical Factsheet 145, a tipping off disclosure may be made in writing or verbally,
and either directly or indirectly so the audit team must ensure that when discussing the matter
with suspect, he is not alerted to the suspicions of money laundering.
Basic elements of AMLA CRIME
C CDD procedures before accepting clients
- to establish CDD programme within the firm
R Records of client identification and any new transactions undertaken for/with
client
- to maintain adequate records and data protection system
I Internal procedures appropriate to forestall and prevent MOL and make relevant
individuals aware of the procedure
- to establish internal reporting lines which should be followed to report any
suspicions
- reporting elements:
to raise a standard for i.e. Suspicious Activity Report [SAR]
content: name, amount, reason Whereabout NARW
M MLRO money laundering reporting officer
- to appoint the MLRO with suitable level of experience and seniority
- duties of MLRO:
consider all circumstances
document the process
, decide whether to report to relevant authorities
consider confidentiality threats
to take legal advice
E Education and training
- to provide staff education and training on an ongoing basis, on how to
recognise and handle transaction
NOCLAR
- ORRRCCC
O Obtain understanding and assess ROMM [ISA 315] arising from NOCLAR.
Establish NOCLAR (confirmed) [ISA 250]
R Report to TCGM. [ISA 265] communication ASAP + [ISA 250]
R Report to TCG [ISA 260]
R Report to others (regulatory authorities) + [ISA 250]
Depending on whether there is a legal duty to disclose or under the public interest.
Auditor to comply with confidentiality principle/principle of confidentiality.
good faith, then it will not constitute a breach of duty of confidentiality.
As it may give rise to confidentiality threat, should have taken legal advice.
[Encouraged/recommended to seek legal advice]
C Consider implications for FS + [ISA 250]
understand how NOMAR affect Es
Should have considered provision of fines and penalties not considered.
C Consider implications for audit
Audit procedures should have been performed to determine amount, materiality and
probability of payment of fines or penalties.
The matter could be immaterial in monetary terms but material by nature.
Individual and GP FS could be MM.
Also impact on audit report/opinion
C Consider continuance
Fraud and error
Fraud risk factor - PIOR
, P Pressure
I Incentive
O Opportunity
R rationalism
:
ORRRCCC
ISA 200 [D]
ISA 500
ISA 240
ISA 330
Risk
Audit risk model [ARM]
AR = IR + CR x DR = 5%
AR Audit risk [D]
>5%: too risky
<5%: reduce profitability
IR Inherent risk (nature and characteristic of business)
CR Control risk SPAMSOAP fails to be detected timely)
DR Detection risk [SR + NSR = DR]
High DR: incompetent auditor
ROMM Financial statement risk [IR + CR = ROMM]
SR Sampling risk
NSR Non-sampling risk
Business Risk: Types - SFOC
Impacts:
Profits
Cash flows
Revenue
Business survival
- Usually, will produce ROMM
S Strategic
- Competition [market share,
customer base]
